14-Apr-2020: BAF March 2020 NTA Backing Report
Due to 57% of the Alternatives Fund’s (BAF's) portfolio being in cash (25.4%) and Water Fund investments (32.1%), their pre-tax NTA decreased by only 1.94 cents per share, or 1.73%, to $1.1033 per share in March. This is in line with my estimate during March that they'd probably end the month being worth around $1.10, hence $1.10 is my valuation for BAF. I do NOT think that NTA is likely to fall further in April, certainly not if the back half of April is as good as the first 2 weeks. The Agricultural and Water investments within the portfolio (approximately 42% of the overall portfolio) have felt little to no impact to date, with Water having a strong month in March. Demand for farm produce has not fallen, and all of the export channels remain open. The portfolio also has a number of unhedged investments across the broader portfolio, in particular investments into the US (esVolta, Cove). These were insulated to a degree by the 13% or so fall in the Australian dollar over the last quarter (6% fall in March). However, there are certainly significant negative impacts in the other parts of the portfolio, and the portfolio managers and the Board have been taking action to mark down carrying values as a result. The bottom line however is that the NTA of BAF fell by less than 2% in March as I had expected (see my valuation), and that compares VERY favourably with other LICs, and underlines the value of having exposure to Alternative Assets, most of which are NOT correlated to share market movements. You can argue that cash performed even better, however, cash has less upside from here. Despite the fund having an NTA of just over $1.10 on March 31, their SP closed the month at 65.5 cps, being a 40% discount to their NTA.
BAF's last closing price before this announcement (Thursday's close) was only 1 cent higher at $0.665. They're up around +7.5% today at $0.715, but that's still a 35% discount to their NTA, which would be at least $1.10 now. That's still a very significant discount. Remember too that the management of this fund is being transferred to Geoff Wilson's Wilson Asset Management soon (as confirmed again in this update - link above). That will be, in Wilson's own terms, a catalyst for a positive market rerating, one of the things his team look to identify when assessing potential investments for their 6 LICs - BAF will be their 7th LIC (listed investment company) and will be renamed the "WAM Alternatives Fund", removing the "Blue Sky" reference from the fund name. The ticker code will also be changed. I doubt whether this fund will be trading at a 30% to 40% discount to their NTA when they are being managed and marketed by WAM. The management transition (including the BAF EGM) will probably take another couple of months, but they are pushing hard to have it all finalised by June 30 obviously.
Disclosure: I hold BAF shares in two of my portfolios, as well as on my Strawman.com scorecard.
14-May-2020: BAF April 2020 NTA Report
The share price of BAF on April 30, 2020, of 72 cps represented a 34%+ discount to their NTA (both their pre-tax NTA of $1.0967 and their post-tax NTA of $1.0927).
That discount (to their April 30 NTA) was at 35.7% yesterday and this morning (share price = 70.5 cps).
Disclosure: I hold BAF shares. They are an alternatives fund that hold alternative assets. 60% of their portfolio is currently water assets and cash.
Announcement in late August suggests that we stand a good chance of heading down the path of a new manager (WAM?) taking over, or a wind up. Catalysts I was thinking would assist when starting this position in the low 70s.
Now that we have the annual reporting behind us then further clarification surrounding this might be imminent and encourage new buyers for a little more upside from the current low 80s range.
A combination such as a wind up of some assets and WAM taking over other parts might be the best solution.
This is straw 2 (of 2) about BAF's announcement yesterday that they've succesfully negotiated an exit agreement that allows WAM (International) - or WAM(I) - part of the Wilson Asset Management Group (or WAMG) - who already manage 6 LICs (WAM, WAX, WAA, WMI, WLE & WGB) - to takeover the management of BAF, which will now likely be renamed "the WAM Alternatives Fund". The following are most of the bits of the announcement that wouldn't fit in the first straw that I just posted:
Wilson Asset Management is a Sydney-based fund manager with specialist experience in managing listed investment companies for retail shareholders. Wilson Asset Management manages over $3 billion on behalf of more than 80,000 retail shareholders across six listed investment companies with a track record of delivering for shareholders. Wilson Asset Management has invested in highly experienced alternative asset professionals to expand its offering in this area. The BAF Board believes new management under Wilson Asset Management will provide BAF shareholders with the opportunity to continue to gain access to a portfolio of alternative assets within an attractive structure managed by an experienced and specialised investment manager.
In considering the Proposal, the Independent Directors have assessed alternative initiatives that are available to the Company, as well as the potential implications for shareholders if any one or more of those initiatives were pursued.
In addition to:
the Independent Directors also considered:
A unilateral termination of the MSA for breach by BSAAF was considered, but was a least preferred option. This would have involved an expensive, prolonged and uncertain legal process for BAF shareholders, and could have left BAF without any management resources or access to investment fund managers, and without valuation evidence which ultimately could have led to BAF’s delisting for failure to lodge semi-annual or annual audited accounts.
If the Proposal is not approved by shareholders at the proposed extraordinary general meeting of shareholders, or otherwise does not proceed, the Company will consider the options that are available to it at that time. It is likely that:
The Independent Directors maintain the view that a wind-down scenario would likely lead to sub- optimal outcomes for shareholders, as:
The BAF Board is targeting submitting documentation to the ASX for review by mid-March 2020 for an EGM targeted to be held in late April 2020.
The BAF Board would like to thank its shareholders for their patience during a frustrating period and would also like to thank BSAAF, the Fund Level Managers and Wilson Asset Management during the lengthy negotiations in achieving this outcome for BAF shareholders. The BAF Board will keep shareholders advised of progress.
--- ends ---
For the full announcement, including the bits that I have omitted - and replaced with "[...details...]" - (due to the 5,000 character limit on straws) - click here.
25-Feb-2020: Appendix 4D and Interim Financial Report
BAF's headline numbers for the half:
They also said this:
"On 13 November 2019, BSAAF (Blue Sky Alternatives Access Fund) and the Company reached a consensus on key commercial terms (on a without prejudice and without admissions basis) to facilitate a consensual transition of the Company’s management rights to Wilson Asset Management ('WAM').
The Board’s negotiations with WAM, KordaMentha and Oaktree continue as the Board works with its legal advisers to settle the final terms of the manager transition. As meaningful new developments occur, these will be communicated to shareholders on the ASX.
For the half-year ended 31 December 2019, the Company has continued to see its share price trade significantly below the NTA of the Company, albeit in a more stable range. In order to address this, the Company has implemented a range of initiatives throughout the year including the continuation of the share buy-back program. The Board has also worked with the Manager and service providers to significantly strengthen and improve the investment valuation process, including the appointment of a new lead independent valuer, streamlining processes, and increasing the transparency of the valuation process supporting individual asset values."
Disclosure: I hold BAF shares.
14-Feb-2020: Net Tangible Asset Backing
Blue Sky Alternatives Access Fund Limited (ASX: BAF) (the ‘Alternatives Fund’) – Net Tangible Assets (‘NTA’) per share for January 2020
The pre-tax NTA of the Alternatives Fund increased by 0.45 cents per share, or 0.40%, to $1.1389 per share in January.
January remains a traditionally quiet month for asset movements with most assets being reviewed in December as part of the interim financial statement preparation. Accordingly, the only asset movement was an uplift in the value of the Argyle Water Fund which is revalued monthly.
During the month, the Alternatives Fund continued its on-market share buy-back program and acquired an additional 666,485 shares at an average price of $0.8893 representing a 22% discount to January’s pre-tax NTA. The buy-back will recommence following lodgement of this report.
The negotiations with Wilson Asset Management, KordaMentha, Oaktree and other stakeholders, continue as we work with our legal advisers to settle the final terms of the manager transition. The other stakeholders referred to include the management teams created out of the former Blue Sky Group that are now partly owned by Oaktree; namely Argyle Group, January Capital and Fortitude Investment Partners.
We hope to be in a position to advise of meaningful new developments shortly. You may wish to listen to my discussion with Alan Kohler for the Eureka Report from 14 January 2020 (https://omny.fm/shows/ceo-interviews/michael-cottier-blue-sky-alternatives-access-fund) which covered off on the status of the manager transition.
Please note that we are targeting 25 February 2020 for lodgement of the Alternatives Fund’s interim financial statements.
Independent Non-Executive Chair
- - - - - -
Disclosure: I hold BAF shares. I added the bold emphasis above to highlight the references to the management transition to WAMG (Wilson Asset Management Group). It's taking a long time, but it is happening.
13-Nov-2019: AGM Presentation
Something more recent:
Alternatively (no pun intended), for those without access (again, NPI) to Alan Kohler's Eureka Report (the link above has a paywall), here's the free podcast of that interview between Alan and BAF's Chairman, Michael Cottier: https://omny.fm/shows/ceo-interviews/michael-cottier-blue-sky-alternatives-access-fund
Another thing to note is that BAF have an active on-market share buyback program in place, as their daily announcements to the ASX will highlight. LICs trading at large discounts to NTA who are prepared to undertake substantial share buy-backs are to be commended. While it shrinks their FUM (funds under management) because they are using their cash to buy back their own shares and then cancel them - which inevitably reduces fees (the fees being based on the shrinking FUM - and that's the main reason why a number of LIC managers will not do share buybacks), it increases their NTA/NAV and is great for existing shareholders in terms of immediate value creation. Those LICs that engage in active on-market share buy-backs often have substantial shareholders (such as WAMG) who are agitating for the board to take steps to close the SP-NTA gap. Another example is TGG (the Templeton Global Growth fund) which WAMG are also substantial shareholders of (via their WAM & WAA LICs). If you've heard the saying, "speak softly but carry a big stick," that resonates with me when I think of Wilson's approach to other underperforming LICs. I'm not sure how softly he does speak, but his big stick is that he will move on the board and look to take over management of the LIC if they don't do as he suggests and improve their own performance. He usually targets LICs with unhappy shareholders, and that lack of confidence in the current LIC management (BAF, TGG, CYA, WIC, PIA, CIE, and extending also to financial services companies that are NOT LICs - such as KBC) can be attributed to poor performance, large and persistent NTA-gap (in the SP), sub-optimal shareholder communication from the board or management, and a general lack of vision or a well-articulated plan to get back to where shareholders want them to be. Sometimes, the LIC will just lift their game, sometimes they will get an alternative white knight to ride to their rescue (as Pengana [PCG] did with the Hunter Hall Global Value Fund - HHV - now PIA, but Pengana's results with PIA have been pretty ordinary since then) to keep Wilson at bay, and sometimes they will end up becoming part of Wilson's managed funds (as CYA did). There are also times where the stand-off persists for years - such as with TGG. TGG have their active on-market share buy back, they've increased their dividends, they've increased their communications efforts (including via roadshows, videos, media interviews and improved newsletters to shareholders), and their NTA-gap has narrowed more recently but still remains in the double digits. TGG is a global fund, and now that Geoff Wilson's global LIC (WGB) is firing and kicking goals (under Katriona Burn's impressive leadership), it might just be a matter of time before Geoff looks to try to absorb some of these underperforming global funds like TGG. I do hold TGG shares. They pay a reasonable dividend and there is also that possibility that Geoff might make a move on them at some point. In the meantime, TGG are doing what they can. Peter Wilmhurst (their previous PM) has quit, but they have a large team (over 40 Franklin-Templeton people) working on the fund globally and their value-investing style will have its day in the sun again soon enough (after a LONG period of outperformance by growth-oriented investing). But back to BAF.
Their latest NTA announcement (for December 31, 2019, in this case) gives a good overview of BAF and the alternative assets that they are invested in. I particularly like their water investments which have been VERY profitable for the fund thus far. There are also investments in private equity funds, agricultural assets, and residential/property assets. 26.1% of their assets were actually cash in the bank at Dec 31, which is handy. It will give WAMG some options regarding new investments when they officially take the reigns.
Disclosure: I hold BAF, TGG, WAM, WLE and WGB shares.
28-Feb-2020: BAF successfully negotiates favourable transition
BAF successfully negotiates favourable exit from existing management arrangements
The Board of Blue Sky Alternatives Access Fund Limited (BAF or the Company) is pleased to announce that the Company has finalised all key commercial terms with all parties to effect a change of manager to Wilson Asset Management (International) Pty Ltd (Wilson Asset Management) from BSAAF Management Pty Ltd (BSAAF).
The key terms are set out in a non-binding term sheet and ancillary documents. The signatories to these documents are BAF, Wilson Asset Management, BSAAF, and Argyle Investment Management P/L, AAAP Securities Limited, January Capital GP P/L, BSPRE Investment Management P/L, Blue Sky Private Real Estate P/L, January Capital P/L, FIP Holdings P/L and Blue Sky Alternative Investments LLC, the managers of the underlying Blue Sky funds (Fund Level Managers) in which BAF has invested (Blue Sky Investments).
Under these documents, the existing Management Services Agreement (MSA) between BAF and BSAAF will terminate, subject to the finalisation of binding long-form legal documentation (based on the agreed commercial terms) and, most importantly, the approval of BAF shareholders to the change of manager proposal (the Proposal).
Details of the terms of the Proposal will be contained in the documentation accompanying the notice of meeting, including the following key commercial terms:
The BAF Board has constantly strived to produce the best result for BAF shareholders – implementing necessary changes to narrow the persistent discount between BAF’s share price and its NTA, ensuring that shareholders have the greatest opportunity to maximise their investment in BAF while at the same time ensuring liquidity. After a comprehensive selection process which involved BAF receiving and evaluating proposals from various manager candidates in Q4 2019, the BAF Board believes that a manager transition to Wilson Asset Management is the superior outcome for BAF shareholders. Wilson Asset Management is a Sydney-based fund manager with specialist experience in managing listed investment companies for retail shareholders.
[continued in 2nd straw]